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March 8, 2018

ATO Guidance on the Meaning of “Carrying on a Business”

The ATO has issued a draft taxation ruling to explain the factors it will consider when deciding whether a company (incorporated under the Corporations Act 2001) is “carrying on a business”. This is one of the tests companies and small businesses must pass to be eligible for the lower corporate tax rate. As this is…

March 6, 2018

New Passive Income Test for Lower Corporate Tax Rate

The Federal Government has recently introduced a Bill into Parliament to ensure that companies with more than 80% passive income, will not qualify for the reduced 27.5% company tax rate otherwise available to companies that carry on a business and have an aggregated turnover below the prescribed relevant threshold ($25 million for 2017–2018). Under the…

August 14, 2017

ATO Allows Refinance of UPEs Placed on 7-year Interest Only “Sub-trust” Loans

The ATO has released guidelines (PCG 2017/13) which will allow trusts to refinance unpaid entitlements (“UPEs”) of corporate beneficiaries to the income of a trust that were converted to a 7 year interest only loan, where the principal component was due to be repaid either by 30 June 2017 or 30 June 2018. Under the…

August 8, 2017

Transfer pricing: interest rate on borrowing not arm’s length

In a major transfer pricing judgment (“the Chevron Case”), the Full Federal Court has unanimously dismissed Chevron Australia’s appeal, finding that its loan arrangement with its related US company, Chevron Texaco Funding Corporation, was not at arm’s length and the Commissioner was justified in denying Chevron Australia’s interest deduction claims. At the crux of the…

August 8, 2017

Bill to reduce corporate tax rate

Parliament has recently enacted the Treasury Laws Amendment (Enterprise Tax Plan No 2) Bill 2017 to progressively extend the lower 27.5% corporate tax rate to all corporate tax entities by the 2023–2024 income year. Importantly, for companies to be eligible to access the reduced 27.5% corporate tax rate between the 2018 to 2023 income years,…

March 27, 2017

No deduction or capital loss for apparent guarantee liability as a result of insufficient support

The Administrative Appeals Tribunal (AAT) has affirmed that two family trusts that were involved in a building and construction business with other related entities were not entitled to a deduction or a capital loss for $4.3 million that they claimed related to a guarantee liability. The AAT found that the documentary evidence and the oral…

March 10, 2017

Intangible capital improvements made to a pre-CGT asset

On 25 January 2017, the ATO issued Taxation Determination TD 2017/1. It provides that for the purposes of the “separate asset” rules in the Income Tax Assessment Act 1997, intangible capital improvements can be considered a separate CGT asset from the pre-CGT asset to which those improvements are made, if the relevant thresholds are satisfied….

January 18, 2017

Contrived trust arrangements in ATO sights

The ATO has cautioned taxpayers against arrangements that seek to minimise tax by creating artificial differences between the taxable net income and distributable income of closely held trusts. Deputy Commissioner Michael Cranston said the ATO is investigating arrangements where trustees are engineering a reduction in trust income to allow taxpayers to improperly gain favourable tax…

November 4, 2016

SMSF ‘Related Party’ Borrowing Arrangements

The ATO has issued a taxation determination (TD 2016/16) concerning whether the ordinary or statutory income of a self-managed super fund (SMSF) would be non-arm’s length income (NALI) under the tax law, and therefore attract 47% tax, when the parties to a scheme have entered into a limited recourse borrowing arrangement (LRBA) on terms which…

October 28, 2016

Budget Superannuation Changes on the Way

The Federal Government has been consulting on draft legislation to give effect to most of its 2016–2017 budget superannuation proposals. Here are some of the key changes. Deducting personal contributions All individuals up to age 75 will be able to deduct personal superannuation contributions, regardless of their employment circumstances. Of course, such deductible contributions would…

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